How should a consolidated corporation calculate project income for Florida's Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue approved a methodology for calculating income generated by a certified capital-investment project when the taxpayer filed consolidated Florida corporate income-tax returns.

The company had to prepare pro forma federal and Florida returns for the project, compute project income under generally accepted accounting principles and section 220.13, and use site-specific accounting where available. The Department also accepted the proposed cost-of-sales allocation for identified general-ledger accounts that were not directly linked to a location.

After determining project taxable income, the company had to apply the project's Florida apportionment factor and corporate tax rate to calculate Florida project tax liability and the associated Capital Investment Tax Credit. The allowable credit remained subject to the statutory limits and annual certification requirements.

What this means for you

Capital-investment projects

Separate, supportable project accounting is central to measuring the Florida income attributable to a qualifying project.

Corporate tax teams

Retain the pro forma returns, allocation workpapers, and annual certification that the program requirements were maintained.

Common questions

Q: Could the taxpayer calculate the credit only from its consolidated return?
A: No. It had to prepare a pro forma calculation for the project.

Q: Did Florida apportionment apply to project income?
A: Yes.

Q: Was the approved computation unconditional?
A: No. It depended on the represented facts and the statutory credit limitations.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, 220.191, and 213.22
• Fla. Admin. Code r. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-015

Original ruling text

Executive
Director
Marshall Stranburg

QUESTION: TAXPAYER REQUESTS A WRITTEN AGREEMENT BETWEEN ITSELF
AND THE FLORIDA DEPARTMENT OF REVENUE, CONCERNING THE METHOD BY
WHICH INCOME GENERATED BY OR ARISING OUT OF A “QUALIFIED CAPITAL
INVESTMENT PROJECT” SHALL BE DETERMINED FOR PURPOSES OF THE FLORIDA
CAPITAL INVESTMENT TAX CREDIT UNDER S. 220.191, F.S.
ANSWER: WHEN FILING ITS CONSOLIDATED FLORIDA CORPORATE INCOME TAX
RETURN, IT SHALL BE NECESSARY FOR THE TAXPAYER TO USE A PRO-FORMA
FORMAT TO DETERMINE THE PROJECT’S ANNUAL TAXABLE INCOME. TAXPAYER
WILL APPLY ITS FLORIDA APPORTIONMENT FRACTION TO THE PROJECT’S ANNUAL
TAXABLE INCOME, AND APPLY THE FLORIDA CORPORATE INCOME RATE OF 5.5%
FOR THE DETERMINATION OF THE PROJECT’S FLORIDA TAXABLE INCOME AND
ASSOCIATED CAPITAL INVESTMENT TAX CREDIT.
December 31, 2014
Re:

Technical Assistance Advisement – TAA 14C1-015
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, 220.191, Florida Statutes (“F.S.”)
Rule 12C-1.0191, Florida Administrative Code (“F.A.C.”)
XXXXX (“Taxpayer”)
FEIN: XXXXX
Project ID: XXXXX
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“EFI”)

Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement
(“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding your
request for an agreement concerning how the method by which income generated by or arising
out of Taxpayer’s qualified capital investment project shall be determined for purposes of
applying the Capital Investment Tax Credit (“CITC”). 1

1

Taxpayer’s request, exhibits and email dated XXXXX, are attached to and incorporated into this TAA.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes, Interim Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

Section 220.191(5), F.S., addresses applications for CITC. That statute provides:
Applications shall be reviewed and certified pursuant to s. 288.061. The Department of
Economic Opportunity, upon recommendation by Enterprise Florida, Inc., shall first
certify a business as eligible to receive tax credits pursuant to this section prior to the
commencement of operations of a qualifying project, and such certification shall be
transmitted to the Department of Revenue. Upon receipt of the certification, the
Department of Revenue shall enter into a written agreement with the qualifying business
specifying, at a minimum, the method by which income generated by or arising out of the
qualifying project will be determined.
Pursuant to Rule 12C-1.0191, F.A.C., the Department of Revenue has adopted TAAs as the
method for entering into such written agreements.
On XXXXX, the Office of Tourism, Trade, and Economic Development (OTTED, now known
as Department of Economic Opportunity) certified Taxpayer as eligible to receive tax credits
under s. 220.191, F.S. On XXXXX, DEO confirmed the Taxpayer met the required
commencement of operations criteria as of XXXXX. The Department of Revenue, having
received said certification and confirmation, has examined your letter and has established that
you have complied with the statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department of Revenue is hereby granting your request for a TAA. The
Department of Revenue, in issuing this TAA, has relied on the representations of Taxpayer and
the certification of the Department of Economic Opportunity. This TAA specifies the method by
which income generated by or arising out of the qualifying project will be determined, based on
the facts as represented to the Department of Revenue. This response to your request constitutes
a Technical Assistance Advisement under Chapter 12-11, F.A.C., and is issued to you under
authority of s. 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is a global XXXXX and XXXXX company. It is engaged in the research, design,
development, manufacture, integration, and sustainment of advanced technology systems,
products, and services. It employs about XXXXX people worldwide. Taxpayer files
consolidated Florida and federal corporate income tax returns.
Taxpayer was awarded a CITC for its XXXXX and XXXXX project on XXXXX. The project
consisted of upgrading its XXXXX facility and constructing a new XXXXX at its location in
XXXXX County, Florida. This project would allow the site to retain and expand future program
efforts. XXXXX is one of Taxpayer’s five core business areas, XXXXX, XXXXX, XXXXX,
XXXXX, and XXXXX. XXX has XXXXX, in XXXXX and XXXXX.
Taxpayer states XXXXX jobs have been generated by the project (XXXXX required). Taxpayer
spent $XXXXX in capital investment for this project (originally estimated at $XXXXX in
capital investment). 2

2

DEO has verified that $XXXXX was spent on the project through the commencement of operations date, XXXXX.

Technical Assistance Advisement
Page 3

Taxpayer has not requested a Technical Assistance Advisement for an agreement concerning the
method by which income of the project will be determined until its letter dated XXXXX. Nor
has the Taxpayer pursued claiming the credit on any previously filed Florida Corporate Income
Tax returns. Taxpayer intends to amend or adjust any return where the statute of limitations has
not expired to claim the credit. Taxpayer is under audit in the state of Florida for the period from
XXXXX to XXXXX. Taxpayer is proposing to include this credit as an adjustment in the audit.
Taxpayer intends to amend its XXXXX return.
ISSUES PRESENTED
In its letter dated XXXXX, Taxpayer requests a written agreement to determine how the
Qualifying Project’s income will be computed, based upon s. 220.191, F.S., and Rule 12C1.0191, F.A.C.
LEGAL AUTHORITY
Section 220.11, F.S., states in part:
(1) A tax measured by net income is hereby imposed on every taxpayer for each taxable
year commencing on or after January 1, 1972, and for each taxable year which begins
before and ends after January 1, 1972, for the privilege of conducting business, earning or
receiving income in this state, or being a resident or citizen of this state. Such tax shall be
in addition to all other occupation, excise, privilege, and property taxes imposed by this
state or by any political subdivision thereof, including any municipality or other district,
jurisdiction, or authority of this state….
Section 220.13, F.S., states in part:
(1) The term “adjusted federal income” means an amount equal to the taxpayer’s taxable
income as defined in subsection (2), or such taxable income of more than one taxpayer as
provided in s. 220.131, for the taxable year, adjusted as follows: …
Section 220.15, F.S., states in part:
(1) Except as provided in ss. 220.151, 220.152, and 220.153, adjusted federal income as
defined in s. 220.13 shall be apportioned to this state by taxpayers doing business within
and without this state by multiplying it by an apportionment fraction composed of a sales
factor representing 50 percent of the fraction, a property factor representing 25 percent of
the fraction, and a payroll factor representing 25 percent of the fraction. …
Section 220.191, F.S., states in part:
(1) DEFINITIONS.—For purposes of this section:
(a) “Commencement of operations” means the beginning of active operations by a
qualifying business of the principal function for which a qualifying project was
constructed.

Technical Assistance Advisement
Page 4

(b) “Cumulative capital investment” means the total capital investment in land,
buildings, and equipment made in connection with a qualifying project during the period
from the beginning of construction of the project to the commencement of operations.
(c) “Eligible capital costs” means all expenses incurred by a qualifying business in
connection with the acquisition, construction, installation, and equipping of a qualifying
project during the period from the beginning of construction of the project to the
commencement of operations, including, but not limited to: …
(d) “Income generated by or arising out of the qualifying project” means the qualifying
project’s annual taxable income as determined by generally accepted accounting
principles and under s. 220.13.

(f) “Qualifying business” means a business which establishes a qualifying project in this
state and which is certified by the Department of Economic Opportunity to receive tax
credits pursuant to this section.

(2)(a) An annual credit against the tax imposed by this chapter shall be granted to any
qualifying business in an amount equal to 5 percent of the eligible capital costs generated
by a qualifying project, for a period not to exceed 20 years beginning with the
commencement of operations of the project. …The annual tax credit granted under this
section shall not exceed the following percentages of the annual corporate income tax
liability or the premium tax liability generated by or arising out of a qualifying project:

1. One hundred percent for a qualifying project which results in a cumulative capital
   investment of at least $100 million.
2. Seventy-five percent for a qualifying project which results in a cumulative capital
   investment of at least $50 million but less than $100 million.
3. Fifty percent for a qualifying project which results in a cumulative capital investment
   of at least $25 million but less than $50 million.

(4) Prior to receiving tax credits pursuant to this section, a qualifying business must
achieve and maintain the minimum employment goals beginning with the
commencement of operations at a qualifying project and continuing each year thereafter
during which tax credits are available pursuant to this section.

(8) The Department of Revenue may specify by rule the methods by which a project’s
pro forma annual taxable income is determined.
DISCUSSION
On XXXXX, DEO issued a letter approving Taxpayer’s project for participation in Florida’s
CITC program, and indicated in its letter that the “Qualifying Project” would be located in a
High Impact Performance Incentive Sector pursuant to s. 288.108, F.S. 3 The certification
3

DEO’s certification and confirmation letters are attached to and incorporated into this TAA.

Technical Assistance Advisement
Page 5

approval entitles the project to eligibility for an annual tax credit against the corporate income
tax imposed if certain criteria are met, in an amount equal to the lesser of the following for up to
twenty years, beginning with the commencement of operations:

1. Five (5) percent of the cumulative capital investment, which is expected to exceed
   $XXXXX;
2. Fifty (50%), seventy-five (75%), or one hundred percent (100%) of the annual corporate
   income tax liability generated by or arising out of the Qualifying Project, depending on
   the level of cumulative capital investment; or
3. The tax due on the Florida consolidated corporate income tax return prior to application
   of this credit that includes the income generated by or arising out of the qualifying
   project.
   DEO has required that the Qualifying Project meet certain criteria by the commencement of
   operations. The “commencement of operations” (as defined in s. 220.191, F.S.) will not be
   deemed to occur unless the Taxpayer has provided DEO with evidence that it has met the
   following criteria:
   1.
   2.
   3.
   4.

Completion of construction of the new XXXXX;
Completion of renovations to the XXXXX facility;
Purchase of the XXXXX equipment to outfit the new and existing facilities; and
Creation of XXXXX new jobs.

On XXXXX, DEO confirmed the Taxpayer met the required commencement of operations
criteria as of XXXXX. No annual CITC may be claimed without a letter from DEO stating that
the appropriate annual requirements have been satisfied or maintained.
The Taxpayer proposes a methodology to compute the income generated by or arising out of the
qualifying project and the corresponding CITC. Taxpayer states XXXXX can track the financial
and tax records for its XXXXX using separate general ledger accounting systems. The Taxpayer
will prepare a pro forma return for the Project. Exhibit 2 illustrates the Taxpayer’s proposed
methodology for calculating the book tax adjustments. The methodology proposes using site
identification for the allocation of income and expenses.
In addition to this methodology, the Taxpayer proposes a methodology of allocation for other
miscellaneous general ledger accounts that are not directly linked to either XXXXX locations.
Taxpayer proposes allocating a percentage of these items based on cost of sales. XXXXX would
calculate a percentage for allocation using the cost of sales at XXXXX as related to the overall
XXXXX cost of sales (XXXXX COS/ XXXXX and XXXXX COS = % COS). Using the
calculated percentage XXXXX would apply that rate to the G&A accounts listed below to arrive
at an allocation amount for the separate company income statement.
Account
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

2013 Balance
$ XXXXX
$ XXXXX
$ XXXXX
$ XXXXX
$ XXXXX

Technical Assistance Advisement
Page 6

The Department basically concurs with Taxpayer’s methodology. Taxpayer must apply
generally accepted accounting principles and the provisions of s. 220.13, F.S., in computing the
income of the Project.
After the Project’s taxable income is determined using the method described above, the Florida
apportionment factor for the Project, as determined under section 220.15, F.S., will be applied to
the Project’s taxable income to determine the Project’s Florida taxable income and the associated
CITC. The allowable CITC will be limited to the lesser of the limitations stated above. The
Taxpayer will provide a pro forma Florida and federal return for the Project. Taxpayer will also
provide a copy of the letter from DEO certifying the annual requirements have been satisfied or
maintained.
Pursuant to s. 220.191(2)(d), F.S., when the capital investment is at least $100 million, credit
amounts not fully used in any one year because of insufficient tax liability on the part of the
qualifying business may be used in any one year or years beginning with the 21st year after the
commencement of operations of the Project and ending with the 30th year after the
commencement of operations of the Project.
To determine the amount of unused credit that can be carried forward, the Taxpayer must first
determine the tax liability generated by or arising out of the qualifying project. If the credit is
limited to the tax liability generated by or arising out of the Project, not the tax liability on the
consolidated return, or by the 5% annual credit cap, then there will not be a carryforward. If the
credit is limited by the tax liability on the consolidated Florida return, not the tax liability
generated by or arising out of the Project and not by the 5% annual credit cap, then there will be
a carryforward that can be claimed beginning with the 21st year after the commencement of
operations.
The current audit, audit XXXXX, should take into account available credit from this project.
Taxpayer may amend its returns to claim the CITC for tax years where the statute of limitations
has not expired.
CONCLUSION
Given the specific circumstances involved in this case, and based on the representation of the
Taxpayer, the computation above properly computes the income generated by or arising out of
the qualifying project based upon s. 220.191, F.S., and Rule 12C-1.0191, F.A.C. However,
Taxpayer is reminded that should the facts provided in its request of XXXXX, be determined to
be incorrect or changed, the computation for the income generated by or arising out of the
project could be substantially different from what has been agreed upon in this TAA.
This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice as specified in section 213.22, F.S. Our response is based on those facts and specific
situation summarized above. You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules upon this advice is based may subject
future transactions to a different treatment than expressed in this response.

Technical Assistance Advisement
Page 7

You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of
your request for Technical Assistance Advisement, the backup material and this response,
deleting names, addresses and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 15 days of the date of this
letter.
Sincerely,

Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6478
Record ID 179674